SC holds bank liable for loss of money from account

The Supreme Court has held a bank liable to compensate for the loss of huge money suffered by a school for linking its account to net banking without due authorisation.

It directed Indian Bank to pay Rs 25 lakh to a school whose account without net banking facility was linked to customer information file of the principal resulting in the fraudulent transfer of money.

A bench of Justices D Y Chandrachud and Hrishikesh Roy said that the bank has rendered itself liable by enabling net banking facility by linking the individual account of the school’s principal, to the school’s account.

The top court allowed an appeal filed by DAV Public School, Paschim Midnipur and modified the orders passed by the National Consumer Disputes Redressal Commission and its state chapter.

“The denial of the compensation corresponding to the extent of the school’s loss, by the state commission as well as by the NCDRC would not in our view, be justified,” the court said in its judgement delivered on December 18.

The school principal alleged deficiency of service against the bank for the siphoning off Rs 30 lakh through online transactions. This was brought to the notice of the bank on April 9, 2014. By the time the account could be blocked, another sum of Rs five lakh got transferred from the school’s account.

The court did not agree to the state commission as well as the NCDRC's findings that though it was a mistake on the part of the bank to tag the school’s account with the personal account of the principal, transactions could not have taken place either with the connivance or gross negligence on the part of the principal. Both the Commissions had directed for compensation of Rs one lakh only.

“In so far as Rs 25 lakh loss was concerned, the complainant cannot be held responsible directly or even vicariously, either as an institution or the principal, as an individual,” the court said.

However, it did not allow a plea to compensate the further loss of Rs five lakh, saying, when the siphoning off a large sum was first detected by the school staff, the official complaint was not lodged immediately with the bank authorities.